Grains outlook: After the big drought

The U.S. drought of 2012 drove corn and soybeans to record or near-record prices this year, but the full impact of the summer’s heat wave and drought on grain and livestock markets is still to be determined, say farmers, traders and analysts.

Soybean prices in particular backed off from highs after farmers started reporting better-than-expected yields, and corn retreated when high costs cut forecasts of demand. But carryover stockpile calculations and forecasts of yields and harvest acreage continued to provide plenty of questions going into the fall, analysts say.

The questions also increased speculation and predictions about the outlook for cattle, hogs and poultry, which consume much of the grain supply and could face sharp rationing of production in the next few months.

“It’s really a question of fine-tuning supply and trying to figure out which demand category is going to get rationed and how much,” says Dan Cekander, director of grain research for Newedge USA. “Certainly we’re going to have to cut back on corn feeding significantly. Obviously it looks like we’re going to cut the exports back significantly.”

The scale of the problem is highlighted by Tommy Kent Crouch of TKC Investment Services (see October 2012 Trader Profile) who calls the drought the worst of his 46-year trading career. “This is a catastrophe of Biblical proportions,” he says. “You go from Pennsylvania all the way to Colorado, [all] were in the grips of a tremendous drought, tremendous heat. It affected a very, very wide area of this country.“

But Crouch says his initial predictions of the impact of the drought on soybean yields were proven wrong in mid-September when he realized that his mother’s soybeans, contracted at 40 bushels per acre, actually were going to come in well above that figure and eventually were harvested at 68 bushels per acre.